Long-term investors don't need to concern themselves with the latest worries on Wall Street. The markets have been plagued by inflation and recession fears countless times over the last century, yet the S&P 500 index still returned about 10% per year.
If you have at least 10 years to put some money to work in the market, there are attractive growth stocks trading at reasonable valuations right now. Wall Street's fears about the near term have caused valuations on quality companies to be unusually low given their future prospects.
What follows are two stocks that can help grow your savings for a happy retirement.
NASDAQ: TSCO
Key Data Points
1. Tractor Supply
Tractor Supply (TSCO +1.07%) is a well-managed retailer that has delivered consistent and profitable revenue growth for many years. If you had invested $1,000 in the stock 10 years ago, you would have $4,300, or an annualized return of over 15%, but it's not done. Tractor Supply is the largest rural retailer in the U.S., with more than 2,100 stores in 49 states. While it may not seem like the company has room to expand, a look at its history of growth and demographic suggest otherwise.
Tractor Supply has been around for 85 years and saw growth explode during the pandemic. The company continues to open new stores and gain market share. It sells items on a needed basis to farmers, ranchers, and other rural homeowners. Since Tractor Supply's average customer makes an above-average income and has a below-average cost of living, the business is perhaps more recession resilient than the average retailer, which is an advantage.
The company just completed the acquisition of Orscheln Farm and Home, which has pushed annual revenue to over $14 billion and expanded the store footprint in the Midwest.
Most importantly, Tractor Supply has a history of growing profits faster than the top line, which suggests a management culture that is not solely focused on building an empire but establishing a profitable business that can reward investors for a long time.
On that note, Tractor Supply jacked up its dividend payment last year to $3.68 per share for the full year. It returns roughly a quarter of its profits to shareholders, bringing the dividend yield to 0.87%. That's below average, but keep in mind, Tractor Supply has raised its dividend by more than 700% over the last 10 years.
With the shares trading at a price-to-earnings (P/E) ratio of just under 23 based on this year's analyst estimates, investors are getting a rewarding stock with good growth prospects for a reasonable price.
NYSE: BJ
Key Data Points
2. BJ's Wholesale
The name may not sound like an exciting investment opportunity, but BJ's Wholesale Club Holdings (BJ +0.99%) is an attractive growth story. It's following in the footsteps of Costco Wholesale and already showing success. In its first few years as a public company, the stock is up 180% over the last three years, but it's just getting started.
It's clear that customers value savings during times of inflation, and that is evident in BJ's latest numbers. Comparable-club sales, excluding fuel sales, increased 8.7% year over year in the fiscal fourth quarter of 2022. Moreover, membership fee income rose 8% year over year to $102 million.
BJ's also reported a record 90% tenured member renewal rate. That's comparable to warehouse leader Costco, which posted a 92.6% renewal rate last quarter in the U.S. and Canada. But BJ's recent comp sales also shows that it is growing faster than Costco -- and this isn't surprising. BJ's is a much smaller business, with 237 clubs and 165 BJ's gas stations in 18 states.
And that's why the stock should excite investors. BJ's still has the entire rest of the country to penetrate. The company has accelerated its comp sales growth over the last four years as more people discovered the tremendous savings on offer at warehouse stores.
Like Amazon Prime, when customers join, they immediately have an incentive to shop at BJ's as frequently as possible to get value out of their membership. This drives consistent annual sales and profitable growth since the membership fee accounts for most of the company's operating profit.
Despite the run-up in the share price over the last three years, investors can buy the stock at a forward P/E of 19, which is a discount to the average S&P 500 stock's P/E of 23 right now. This is an undervalued growth stock worth tucking away in your portfolio for the next decade.
